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Edwards' lawyer slams Justice Department as possible indictment looms

Edwards' attorney says the government is using a "novel" theory in the case

An indictment or a plea deal appear to be likely results from the probe

A federal grand jury has been looking into payments made to Edwards' mistress

The payments allegedly were made by Edwards' campaign and supporters

Washington (CNN) -- In the wake of news that the Justice Department is moving towards a possible indictment of former presidential candidate and senator John Edwards, his defense attorney Wednesday asserted his client's innocence and said a prosecution is unwarranted.

"John Edwards has done wrong in his life -- and he knows it better than anyone -- but he did not break the law," attorney Greg Craig said in a statement late Wednesday

Craig went on to attack the Justice Department's handling of the case. "The government's theory is wrong on the facts and wrong on the law. It is novel and untested. There is no civil or criminal precedent for such a prosecution."

The Justice Department has authorized prosecutors to bring charges in the case which involves financial support given to Edwards' mistress and whether there was a violation of campaign law, two sources familiar with the case told CNN.

An indictment could be averted if prosecutors and lawyers for Edwards reach a plea deal.

Edwards is now considering his options, one source with knowledge of the investigation told CNN.

The government wants Edwards to plead guilty to a felony, but he doesn't want to do that because he would lose his law license, a source close to the Edwards family told CNN. Edwards has talked to friends and associates about wanting to start a public interest law firm, and "doesn't want to lose his license, not to mention he is terrified of going to jail," the source added.

Since 2009, a federal grand jury in North Carolina has been investigating payments made to Rielle Hunter, Edwards' mistress, who worked as a videographer for his campaign. Edwards fathered an out of wedlock baby with Hunter while he was married. The grand jury has been investigating whether the payments should be considered unreported campaign donations. Lawyers for Edwards have argued they should not be.

"The government originally investigated allegations that Senator Edwards' campaign's funds were misused but continued its pursuit even after finding that not one penny from the Edwards campaign was involved. The Justice Department has wasted millions of dollars and thousands of hours on a matter more appropriately a topic for the Federal Election Commission to consider, not a criminal court," Craig said in his statement.

The Justice Department had no comment Wednesday on the Edwards probe.

Whatever the outcome, a resolution to the two-year investigation by the government is expected "soon," the source with knowledge of the investigation said Wednesday.

Both sources refused to speak on the record because of the sensitivity of the matter.

The source close to the family describes Edwards' legal team as "solid people" who are trying to convince him to take a plea and get a better offer by suggesting the government's case isn't as strong as the federal prosecution team might think. The source said Edwards' defense lawyers hope to still sway the government to offer Edwards a better deal.

The Edwards legal team had hoped that the Justice Department would end up not pursuing charges.

Much of the government's case appears centered on a former aide. In his tell-all book "The Politician," former Edwards staffer Andrew Young wrote that heiress Rachel "Bunny" Mellon gave Edwards a gift of $700,000 that was used to cover up the affair with Hunter, a video producer for the campaign who was pregnant with the former senator's child. Mellon's attorneys have previously said she thought she was just helping a friend, didn't know what the money was meant for and that she did nothing wrong.

Edwards declined to comment Tuesday to CNN affiliate WRAL-TV of Raleigh, North Carolina.

Young told WRAL in 2010 that Mellon did not know how her money was used, but said the money went toward flights and to pay rent for Hunter's California home while Young pretended to be the father of Hunter's child.

Edwards later admitted he fathered the child.

Edwards told ABC's "Nightline" in 2008 that he never paid any of the people involved in the scandal and never asked any money to be paid to those involved.